but he DOES have the opportunity to pay slippage, commission, fees, bid/ask spread, etc...
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multi-strategy options traders
- Thread starter ptrjon
- Start date
but he DOES have the opportunity to pay slippage, commission, fees, bid/ask spread, etc...
Quote from TraderZones:
but he DOES have the opportunity to pay slippage, commission, fees, bid/ask spread, etc...
mmmm... that sounds good. I'll have that.
Here's a look at a potential trade I'd get into.
Buy 100sh XOM -$6780
Sell 1 Jan 80 call +$90
Receive Jun Dividend +44
Receive Sep Dividend +44
Receive Dec Dividend +44
8 month yield from option sale and dividends:222/6690 initial investment = 3.3%
Breakeven price for selling the call = 80.90, at which point I'd have a 21% total return.
This is a superior strategy to selling a Jan 80 put. There's a place for covered call traders. There's no need to completely bash a strategy.
there is a side of the argument that says XOM may be a better investment if they did not pay the dividend, and instead paid corporate income tax and then reinvested that capital into their own operations. However, it is not an option for an investor to invest in exxon without the dividend.
The answer shouldn't be to avoid dividend paying stocks entirely, as there are several fine companies to invest in that do pay div's.
The answer shouldn't be to avoid dividend paying stocks entirely, as there are several fine companies to invest in that do pay div's.
Quote from ptrjon:
Buy 100sh XOM -$6780
Sell 1 Jan 80 call +$90
Receive Jun Dividend +44
Receive Sep Dividend +44
Receive Dec Dividend +44
8 month yield from option sale and dividends:222/6690 initial investment = 3.3%
A return of 3.3% is predicated on XOM rising $1.32 ... your static return is 1.3%
Breakeven price for selling the call = 80.90, at which point I'd have a 21% total return.
This is a superior strategy to selling a Jan 80 put. There's a place for covered call traders. There's no need to completely bash a strategy.
No one's bashing the strategy. You are being informed that the naked put is an equivalent strategy (same risk profile) and offers the possibility of 1 transaction instead of 3 which means 1/3 the slippage and 1/3 the number of commissions.
Quote from ptrjon:
Buy 100sh XOM -$6780
Sell 1 Jan 80 call +$90
Receive Jun Dividend +44
Receive Sep Dividend +44
Receive Dec Dividend +44
This is a superior strategy to selling a Jan 80 put. There's a place for covered call traders. There's no need to completely bash a strategy.
If XOM at expiry is 80 then you've made 1220+90+132=1442
You could sell the 80P for 1420ish
The differential could be attributed the interest rate priced in for the greater investment of the CC write. Divs are priced in to the put.
If you think that you could sell or trade the call more easily - then that would be a consideration as to which route to go.
Quote from donnap:
If XOM at expiry is 80 then you've made 1220+90+132=1442
You could sell the 80P for 1420ish
The differential could be attributed the interest rate priced in for the greater investment of the CC write. Divs are priced in to the put.
If you think that you could sell or trade the call more easily - then that would be a consideration as to which route to go.
Donna isnt is neat how that works out so well? That out call parity with the dividend priced in funny how its right all the time.
Not the best strategy and doesn't generate much in the way of returns or income quite frankly. That said, I'm not an option trader and general only use options as a hedging strategy, primarily for my high yield fixed income book.
If you are dead set on buying XOM and feel comfortable owning the stock and that it's not going to drop, a much better strategy would be to purchase XOM and short the May 70/62.5 strangle for ~$0.52. And then repeat this strategy every month (adjusting strike prices accordingly).
Assuming a relatively stable stock price and stable volatility (which if you're willing to purchase the stock outright and short a call for income, you should believe), by Jan '11, you'd create ~$450 in short sale proceeds (assuming stable vol) and you'd receive $132 in dividend proceeds.
$582 of income versus $222 in your strategy. Conversely, if we assume that XOM can't recoup the dividend payouts through price appreciation, then the spread is even greater, $450 versus $90.
One thing to keep in mind, you're short volatility on this trade, effectively betting that XOM will stay within the range of the options you're short. XOM rises, you don't participate, XOM falls and you participate x2. It's a good strategy in a low vol stock (or one that you believe will exhibit less vol than the intrinsic vol inferred by the price of the options you're shorting), not such a good one for a high volatility stock unless it's one you are willing to double down on if the price decreases.
I would suggest you do a lot of studying up on options strategies. There are ways to make money, but they requier a lot of thought and understanding of how options work and the pricing methodology behind them. Back in the day I read Dynamic Hedging (which is a graet book), but I believe there are quite a few books that have surpassed it as the Options trader's bible by now.
If you are dead set on buying XOM and feel comfortable owning the stock and that it's not going to drop, a much better strategy would be to purchase XOM and short the May 70/62.5 strangle for ~$0.52. And then repeat this strategy every month (adjusting strike prices accordingly).
Assuming a relatively stable stock price and stable volatility (which if you're willing to purchase the stock outright and short a call for income, you should believe), by Jan '11, you'd create ~$450 in short sale proceeds (assuming stable vol) and you'd receive $132 in dividend proceeds.
$582 of income versus $222 in your strategy. Conversely, if we assume that XOM can't recoup the dividend payouts through price appreciation, then the spread is even greater, $450 versus $90.
One thing to keep in mind, you're short volatility on this trade, effectively betting that XOM will stay within the range of the options you're short. XOM rises, you don't participate, XOM falls and you participate x2. It's a good strategy in a low vol stock (or one that you believe will exhibit less vol than the intrinsic vol inferred by the price of the options you're shorting), not such a good one for a high volatility stock unless it's one you are willing to double down on if the price decreases.
I would suggest you do a lot of studying up on options strategies. There are ways to make money, but they requier a lot of thought and understanding of how options work and the pricing methodology behind them. Back in the day I read Dynamic Hedging (which is a graet book), but I believe there are quite a few books that have surpassed it as the Options trader's bible by now.
The guys who post here will trash any strategy you mention... I assume because they have all blown their trading accounts and tremble at the thought of you making money when they are out of the game.
I have made money on covered calls for years BUT you just can't buy any stock sell a call and make money. There's a lot more to it than that.
Here's an article that is right on the money:
http://www.stock-option-trading-strategies.com/Make-Money-Writing-Covered-Calls.html
http://www.optionseducation.org/strategy/covered_call.jsp
Timing is good and I also like to get a dividend in the mix but the dividend is always small potatoes in the process. The biggest issue is the quality and stability of the stock.
The guys who post here will tell you you can never make any money no matter what you do because everything is factored in. Baloney, often it is but not always. That's why you choose the stocks you make CC's on and the timing to maximize your chances. Also it works to hold a stock for long term to get dividends and the call writing enhances the dividend. I do it all the time.
I make money every quarter including some CC trades.
I have made money on covered calls for years BUT you just can't buy any stock sell a call and make money. There's a lot more to it than that.
Here's an article that is right on the money:
http://www.stock-option-trading-strategies.com/Make-Money-Writing-Covered-Calls.html
http://www.optionseducation.org/strategy/covered_call.jsp
Timing is good and I also like to get a dividend in the mix but the dividend is always small potatoes in the process. The biggest issue is the quality and stability of the stock.
The guys who post here will tell you you can never make any money no matter what you do because everything is factored in. Baloney, often it is but not always. That's why you choose the stocks you make CC's on and the timing to maximize your chances. Also it works to hold a stock for long term to get dividends and the call writing enhances the dividend. I do it all the time.
I make money every quarter including some CC trades.
Who said you cant make money?
What people have said is that you're making money if the stock goes up not because of the options. If you always pick stocks that go up you dont need options, you dont need anything but your magical stock picking abilities.
On the other hand if you think that things like dividends are not priced into options and somehow there is easy risk free money on the table than you're mistaken.
Yes you can collect the dividend when you buy the stock and even sell the call, you're risk is the stock will fall. The thing that people are telling you is you wont be able to buy the stock right before the Xdiv and sell the call and then as soon as it passed xdiv sell the stock and buy back the call for the same prices you put the trade on to collect the div. Once you put on the position you now collect the div but you have to hope the stock goes up.
What people have said is that you're making money if the stock goes up not because of the options. If you always pick stocks that go up you dont need options, you dont need anything but your magical stock picking abilities.
On the other hand if you think that things like dividends are not priced into options and somehow there is easy risk free money on the table than you're mistaken.
Yes you can collect the dividend when you buy the stock and even sell the call, you're risk is the stock will fall. The thing that people are telling you is you wont be able to buy the stock right before the Xdiv and sell the call and then as soon as it passed xdiv sell the stock and buy back the call for the same prices you put the trade on to collect the div. Once you put on the position you now collect the div but you have to hope the stock goes up.
Quote from ptrjon:
Does anyone else trade like this? Any thoughts?
Your overall success depends more on good management skills than strategy selection. I don't you don't believe that at this stage of your career, but it's the truth.
Long calls and long puts is the path to the poorhouse. You will get enough big winners to keep you hooked. just like a slot machine.
Good trading
Mark